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Exercise 21-21 James Corp. applies overhead on the basis of direct labor hours. For the month of May, the company planned production of 8,000 units
Exercise 21-21
James Corp. applies overhead on the basis of direct labor hours. For the month of May, the company planned production of 8,000 units (80% of its production capacity of 10,000 units) and prepared the following overhead budget Operating Levels Overhead Budget 800 Production in units 8,000 Standard direct labor hours 22,000 budgeted overhead Variable overhead costs Indirect materials $13,200 Indirect labor 22,000 Power 8,800 Maintenance 4,400 Total variable costs 48.400 Fixed overhead conta Rent of factory building 18,000 Depreciation-Kachinery 10. Supervisory salaries 17.900 Total fixed costs 46,200 Total overhead conta 594,600 During May, the company operated at 90% capacity (9,000 units) and incurred the following actual overhead costs. Overhead costs (actual) Indirect materials Indirect labor Power Maintenance Rent of factory building Depreciation Machinery Supervisory anlaries Total actual overhend conta $ 13,200 24,500 9,900 5,560 18,000 10,300 20,800 $102,260 1. Compute the overhead controllable variance and classify it as favorable or unfavorable. 2. Compute the overhead volume variance and classify it as favorable or unfavorable. 3. Prepare an overhead variance report at the actual activity level of 9,000 units Step by Step Solution
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